The Petrodollar Wars: The Iraq Petrodollar Connection
Preparing for the Collapse of the Petrodollar System, Part 3
The Petrodollar Wars: The Iraq-Petrodollar Connection
(Miss Part One and Two? Start here.)
|Introduction to Part Three: “The Petrodollar Wars”|
As we have learned from the previous articles in this series, the petrodollar system that was created in the 1970′s has served America well, both economically and politically. What began as a way to drive more demand for the U.S. dollar, in the wake of a move away from the international gold standard in 1971, has provided benefits that few could have ever imagined including the solidification of the U.S. dollar as the global currency of choice. This was important, especially following a temporary loss of dollar credibility after President Nixon’s decision to close the gold window.
Put simply, this ‘dollars for oil’ system has greatly enriched our nation. But this national prosperity has come at the expense of other nations and their potential prosperity.
This brings us to one of the more sensitive, and therefore veiled, aspects of the petrodollar system. Namely, how it has impacted America’s relations with foreign nations, especially in the Middle East.
In this third installment of our series, I will explain how America has handled the growing international challenges to the petrodollar system. The consequences have been nothing short of tragic.
I have entitled this piece, The Petrodollar Wars. This article will focus specifically on the 2003 Iraq war. A follow-up article will detail the Petrodollar connection to the Afghanistan war, the Libyan war, and now, the build up to a war with Syria and Iran.
The world currently consumes nearly 90 million barrels of oil per day.
According to some projections, global oil demand will reach well over 100 million barrels per day by 2015. And thanks to the petrodollar system, growing global demand for oil leads to an increase in U.S. dollar demand. This artificial demand for U.S. dollars has provided remarkable benefits for the U.S. economy. It has also required the Federal Reserve to keep the dollar in plentiful supply.
By perpetually expanding the U.S. money supply, America’s standard of living increases as well. (If this logic does not make sense, be sure to go back and read part one of this series.) The only problem with this situation is that the only way that it can be sustained is if the demand for the dollar and for U.S. debt securities remains consistently strong.
Grasping this last point is extremely important. For if the artificial global dollar demand, made possible by the petrodollar system, were ever to crumble, foreign nations who had formerly found it beneficial to hold U.S. dollars would suddenly find that they no longer needed the massive numbers that they were holding. This massive amount of dollars, which would no longer be useful to foreign nations, would come rushing back to their place of origin… America.
Obviously, an influx of dollars into the American economy would lead to massive inflationary pressures within our economic system.
It is difficult to overstate the importance of this concept as the entire American monetary system literally hinges on this “dollars for oil” system. Without it, Washington would lose it’s permission slip to print excessive numbers of dollars.
Therefore, it should come as no surprise that America has a vested interest in maintaining the petrodollar system. And, if you are an American citizen, so do you.
What Would Happen If The Petrodollar System Ended Tomorrow
Allow me to briefly explain the impact that a sudden loss of the petrodollar system would have upon the United States of America.
- Foreign nations would begin sending a flood of U.S. dollars back to the United States in exchange for the new currency needed for oil.
- The Federal Reserve would lose their ability to print more dollars to solve America’s economic problems.
- The Treasury Secretary and the Federal Reserve Chairman would meet to determine the best course of action.
- That action would involve an immediate and dramatic increase in interest rates to reduce America’s money supply.
- Hyperinflation would ensue temporarily while the interest rates took time to take full effect.
- All oil-related prices, including gas prices, would reach outrageous levels.
- Washington would soon realize that the total amount of money in the system would have to be dramatically slashed even further, leading to an even higher increase in interest rates.
- The clueless American public would demand answers. Those on the left would blame the right. The right would blame the left. And both political parties would seek to blame the Federal Reserve.
- People with adjustable rate debts would be crushed and massive layoffs would occur as businesses would be suffering from the high interest rates.
- Asset prices across the board would plummet in value.
- Amid the financial carnage, an economic recovery eventually would begin to take place. But this new American economy would be tremendously smaller due to a drastically reduced money supply.
This brief scenario is far from exhaustive and is probably very incomplete. But I provide it to help you understand the great economic damage that you and I, and our nation in general, would sustain if the petrodollar system were to collapse suddenly.
The Washington elites are intimately aware of how serious the economic situation could become if the petrodollar system collapsed. After all, they were the architects and masterminds of the entire system. And if one considers Washington’s policies since the mid-1970′s, it is evident that they have no intention of allowing the petrodollar system to fail.
America – The Primary Guardian of the Petrodollar System
Since the dawn of the petroleum age, the geopolitical strategies concocted by developed nations have increasingly been centered on maintaining easy access to the world’s oil supplies. Only the truly naive could deny the obvious powerful economic and political incentives that are derived from access to cheap oil supplies. And while most nations have a clear motivation to maintain easy access to the world’s cheapest oil supplies out of sheer economic necessity, as well as the political goodwill it engenders among the masses, this is certainly not the sole concern for the United States. As you have discovered, the United States has an additional unique incentive regarding the world’s oil. Namely, ensuring that all oil around the globe, both current supplies and future discoveries, remain priced in U.S. dollars.
Given these facts, let’s now explore how the petrodollar system has affected America’s foreign policy actions in the oil-rich region of Western Asia. We will begin with a look back at the events of America’s darkest hour.
Beating the Iraq War Drums – Before 9/11
On September 11, 2001, America’s relations with the Middle East would be altered forever.
The tragic events of that day still live on in the memory of every American. The dreadful carnage in New York City, Washington D.C., and Shanksville, Pennsylvania was heart-rending to the billions around the world who watched the terror unfold before their eyes on live television.
“The president in a very intimidating way left us, me and my staff, with the clear indication that he wanted us to come back with the word there was an Iraqi hand behind 9/11 because they had been planning to do something about Iraq from before the time they came into office. I think they had a plan from day one they wanted to do something about Iraq. While the World Trade Center was still smoldering, while they were still digging bodies out, people in the White House were thinking: ‘Ah! This gives us the opportunity we have been looking for to go after Iraq.’”
So why Iraq? Why the rush to war with a country who so obviously had no connection with the events of 9/11?
As I write this in the early part of 2012, it is a safe assumption that most Americans carry a suspicion, however slight, toward the reasons that they were told the U.S. needed to invade Iraq back in 2003. It is simply not possible to explain the depths of the corruption that exist at the highest levels of government today. Those who have bought into the mainstream media’s portrayal of the American government as an institution who seeks the common good, they do well to recall the words of America’s own first national leader:
“Government is not reason; it is not eloquent; it is force. Like fire, it is a dangerous servant and a fearful master.” (President George Washington)
With that quote as a backdrop, let us dig deeper into our original question: Why did the U.S. appear so eager to launch an unprovoked war against Iraq? And why did the U.S. begin hatching these war plans many months prior to the events of September 11?
After all, many other nations around the world have confirmed stockpiles of dangerous weapons. So why did the United States specifically target Iraq so soon after the Afghanistan invasion of 2001?
Did the U.S. have had some other motivation for seeking international support to invade Iraq?
“On September 24, 2000, Saddam Hussein allegedly “emerged from a meeting of his government and proclaimed that Iraq would soon transition its oil export transactions to the euro currency.”
“CNN ran a very short article on its website on October 30, 2000, but after this one-day news cycle, the issue of Iraq’s switch to a petroeuro essentially disappeared from all five of the corporate-owned media outlets.”
It should be noted that Iraq’s proven oil supplies are considered to be among the largest in the world. However, some experts believe that Iraq’s oilfields, many of which have yet to be exploited, will catapult Iraq above Saudi Arabia in total proven oil reserves in the coming years.
What’s “Our” Oil Doing Under “Their” Sand?
Washington, of course, adamantly denied any and all accusations that the Iraq war was motivated by anything other than disarming Iraq and liberating its beleagered people. According to the Washington elites, the Iraq war was not, nor was it ever, about Iraqi’s oil supplies.
Consider a small sampling of quotes from U.S. officials:
“The idea that the United States covets Iraqi oil fields is a wrong impression. I have a deep desire for peace. That’s what I have a desire for. And freedom for the Iraqi people. See, I don’t like a system where people are repressed through torture and murder in order to keep a dictator in place. It troubles me deeply. And so the Iraqi people must hear this loud and clear, that this country never has any intention to conquer anybody.”(U.S. President George W. Bush)
“This is not about oil; this is about a tyrant, a dictator, who is developing weapons of mass destruction to use against the Arab populations.”(U.S. Secretary of State Colin Powell)
“It’s not about oil and it’s not about religion.”(U.S. Secretary of Defense Donald Rumsfeld)
“I have heard that allegation (of oil motives) and I simply reject it.”(Coalition Provisional Authority Paul Bremer)
“It’s not about oil.”(General John Abizaid, Combatant Commander, Central Command)
“It was not about oil.”(Energy Secretary Spencer Abraham)
“It’s not about the oil.”(the Financial Times reported Richard Perle shouting at a parking attendant in frustration.)
“This is not about oil.”(Australian Treasurer Peter Costello)
“The only thing I can tell you is this war is not about oil.”(Former Secretary of State Lawrence Eagleburger)
“This is not about oil. This is about international peace and security.”(Jack Straw, British Foreign Secretary)
“This is not about oil. That was very clear. This is about America, and America’s position in the world, as the upholder of liberty for the oppressed.”(Utah Republican Senator Bob Bennett)
“There’s just nothing to it.”(White House spokesperson Ari Fleischer on the U.S. desire to access Iraqi oil fields.)
“This cannot be further from the truth. He is a threat to his neighbors. He’s a threat to American security interest. That is what the president has in mind.” She continued: “This is not about oil.”
“Let’s look at it simply. The most important difference between North Korea and Iraq is that economically, we just had no choice in Iraq. The country swims on a sea of oil.”
“We are a nation at war and in many [ways] the reasons for war are fights over energy sources, which is nonsensical when you consider that domestically we have the supplies ready to go.”
“My friends, I will have an energy policy which will eliminate our dependence on oil from the Middle East and will then prevent us from having ever to send our young men and women into conflict again in the Middle East.”
“I am saddened that it is politically inconvenient to acknowledge what everyone knows: the Iraq war is largely about oil.”
“I have been a member of four (Presidential) administrations. And in every one of those administrations we had written as a national security policy that we would go to war to protect the national energy reserves of the Persian Gulf, if necessary.”
“Of course (the Iraq war) is about oil, we can’t deny that.”
“The critical oil and natural gas producing region that we fought so many wars to try and protect our economy from the adverse impact of losing that supply or having it available only at very high prices.”
Q: Do you think the U.S., or U.N. forces, should have moved into Baghdad?A: No.Q: Why not?A: Because if we’d gone to Baghdad we would have been all alone. There wouldn’t have been anybody else with us. There would have been a U.S. occupation of Iraq. None of the Arab forces that were willing to fight with us in Kuwait were willing to invade Iraq. Once you got to Iraq and took it over, took down Saddam Hussein’s government, then what are you going to put in its place? That’s a very volatile part of the world, and if you take down the central government of Iraq, you could very easily end up seeing pieces of Iraq fly off: part of it, the Syrians would like to have to the west, part of it — eastern Iraq — the Iranians would like to claim, they fought over it for eight years. In the north you’ve got the Kurds, and if the Kurds spin loose and join with the Kurds in Turkey, then you threaten the territorial integrity of Turkey. It’s a quagmire if you go that far and try to take over Iraq. The other thing was casualties. Everyone was impressed with the fact we were able to do our job with as few casualties as we had. But for the 146 Americans killed in action, and for their families — it wasn’t a cheap war. And the question for the president, in terms of whether or not we went on to Baghdad, took additional casualties in an effort to get Saddam Hussein, was how many additional dead Americans is Saddam worth? Our judgment was, not very many, and I think we got it right.”
Let’s take a look at what has transpired in the aftermath of the U.S.-led invasion of Iraq to see if the words and the actions line up.
The Rush for Post-War Iraqi Oil
In late 2002 and early 2003, the preparations for the Iraq war were well under way.
As the United States sought international support for the war, several nations expressed opposition to the invasion. China, Russia, and France were among these nations.
Many in the corporate-controlled American media portrayed these nations as “sympathizers” and “supporters” of terrorism due to their hesitancy to invade Iraq on groundless charges.
However, what the corrupt media outlets failed to mention was that these nations had existing oil contracts with Iraq that would be endangered in the event that the West gained control of Iraq.
In an October 2002 interview with the Observer UK, a Russian official at the United Nations stated:
“The concern of my government is that the concessions agreed between Baghdad and numerous enterprises will be reneged upon, and that U.S. companies will enter to take the greatest share of those existing contracts. . . . Yes, if you could say it that way — an oil grab by Washington.”
With just a little bit of in-depth investigation, the clueless American elite media would have discovered that there was more to this than “sympathizing” with terrorists and that prior to the war, Russia was owed billions of dollars by Iraq. Russia had even billions more wrapped up in future contracts.
Together with France and China, Russia stood to gain billions in future oil contracts when, and if, sanctions were lifted against Iraq.
In a separate 2002 news article entitled, Oil After Saddam: All Bets Are In, Samer Shehata, a Middle East expert at the Center for Contemporary Arab Studies in Washington, was interviewed regarding the situation.
“Russia, China, France have the highest stakes in the Iraqi oil industry. Once Saddam is out, everything becomes null and void and there is no legal authority to enforce those claims.”
Is it any wonder why much of the world hates America? Of course, we are told that nations hate us because we have “blue jeans” and “fast cars.” We are told that foreign nations hate Americans because of our liberties. The same corrupt outlets that cram this garbage down the public’s throats are the same ones who lied to the American public about the real reasons for the war in Iraq. The truth is that very few foreign nations “hate” American citizens. Instead, they despise the actions of the American empire with its militaristic adventurism and its excessive intervention into foreign affairs.
The Most Damning Evidence of a Petrodollar Motive in the Iraq War
On June 5, 2003, the corrupt U.S. media missed one of the most important and revealing stories about the Iraq war. However, Carol Hoyas and Kevin Morrison from the London-based Financial Times reported on the story in a piece entitled: Iraq returns to international oil market. Here’s an excerpt of the story:
“Iraq on Thursday stepped back into the international oil market for the first time since the war, offering 10m barrels of oil from its storage tanks for sale to the highest bidder. For some international companies it will be the first time in more than a year that they will do business directly with Iraq… The tender, for which bids are due by June 10, switches the transaction back to dollars – the international currency of oil sales – despite the greenback’s recent fall in value. Saddam Hussein in 2000 insisted Iraq’s oil be sold for euros, a political move, but one that improved Iraq’s recent earnings thanks to the rise in the value of the euro against the dollar.”
Is it not rather interesting to note that within weeks of the invasion of Iraq, all Iraqi oil sales were switched from the euro — back to the U.S. dollar?
Was this war, as Clark and Engdahl suggest, the first “petrodollar” war? I think the evidence is clear that it was.
Think about this. If Iraq was not ultimately about oil, then how ridiculous is it that a nearly bankrupt nation like America could spend hundreds of billions of dollars on “spreading democracy” to foreign nations, like Iraq, when our own nation is in a steep economic decline?
How are the American people able to afford such an altruistic foreign policy when they can’t even afford to take care of their own citizens?
And finally, since when has America become so interested in giving American lives and dollars for the benefit of foreign nations with nothing in return?
And speaking of return, what could Iraq possibly offer in return to America?
Perhaps Vice President Cheney answered that question best when he said in a 1999 speech at the Institute of Petroleum:
“The Middle East, with two-thirds of the world’s oil and the lowest cost, is still where the prize ultimately lies; even though companies are anxious for greater access there, progress continues to be slow.”
Finally, consider Republican Senator Charles Hagel’s rather blunt statement given in a 2007 speech at the Catholic University of America regarding the true purposes behind the Iraq War:
“People say we’re not fighting for oil. Of course we are. They talk about America’s national interest. What the hell do you think they’re talking about? We’re not there for figs.”
Since 1980, America has devolved from being the world’s greatest creditor nation to the world’s greatest debtor nation. But thanks to the massive artificial demand for U.S. dollars and government debt made possible by the petrodollar system, America is able to continue its spending binges, imperial pursuits, reckless wars, and record deficits. In America today, we are living proof that having the world’s most important currency translates into a higher standard of living than most nations.
At one point in America’s history, our largest export was a variety of manufactured goods, made right here in the U.S.
Today, America’s largest export is the U.S. dollar.
And the dollar costs us practically nothing to create. How long will it be before the nations of the world figure out the dollar fiasco is a fraud? Instead of viewing U.S. dollars as worthless paper backed by nothing (as they should), foreign oil producers and consumers were convinced — and required — to hold U.S. dollars in order to purchase oil back in the 1970′s.
However, this demand for dollars is not genuine. It is purely artificial.
Dr. Bulent Gukay of Keele University puts it this way:
“This system of the U.S. dollar acting as global reserve currency in oil trade keeps the demand for the dollar ‘artificially’ high. This enables the U.S. to carry out printing dollars at the price of next to nothing to fund increased military spending and consumer spending on imports. There is no theoretical limit to the amount of dollars that can be printed. As long as the U.S. has no serious challengers, and the other states have confidence in the U.S. dollar, the system functions.”
Pay particular attention to Dr. Gukay’s comment regarding “serious challengers” to the United States. And as the global economy continues to evolve, a whole host of competing currencies will rise to challenge the current dollar hegemony. In fact, that movement is already afoot.
What does that mean for you? In essence, expect more perpetual wars against faceless and nameless enemies as we have seen in the War on “Terror.”
Expect the theater for these conflicts to conveniently be staged in Western Asia — where the majority of the world’s oil supplies lay waiting for their Western “liberators.”
When you “follow the money”, everything begins to make much more sense.
Jerry Robinson is a leading authority on the petrodollar system and global economic issues. He has spoken on the petrodollar system and global economics around the United States, in Europe, and in the Middle East. He is an Austrian economist, published author, columnist, international conference speaker, and the editor of the financial website, FTMDaily.com. In addition, Robinson hosts a weekly radio program entitled Follow the Money Weekly, an hour long radio show dedicated to deciphering the week’s economic news. For media inquiries, click here.
TAGS: the petrodollar system, petrodollars, the war in afghanistan, the iraq war, dollar collapse